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Assurance Vie - An expatriate’s guide
Tax and estate planning figure prominently in the list of priorities of many financially secure expatriate residents of
France. The Napoleonic code which forms the base of succession law in
France produces a fiscal inheritance environment which is totally alien to most of us. We cherish our right to leave our estate to whomsoever we please, and are not happy to discover that in
France our choice is strictly regulated. Worse still, our spouses do not rank highly in the portio legitima in French law. Real estate and capital are the two major concerns, and we should be relieved to learn that there are mechanisms available to us in both areas to help alleviate our worries. This article concentrates on the preservation and development of capital, and explains the huge benefits offered by the French life assurance product, Assurance Vie.
There are three major taxes that threaten the unprotected capital of even the moderately well-off expatriate in
France. Income tax; wealth tax, and inheritance tax are all queuing up for a slice of our capital, and if we do not take steps to prevent it they can make serious inroads into our net worth. Ever resourceful in terms of personal finance, the French have over the decades evolved and streamlined a product that is capable of both protecting accumulated wealth and promoting its development for the future enjoyment of the investor’s heirs. Effectively an investment within a life assurance wrapper, this product has been so successful that today there are over €1.4 trillion invested in Assurance Vie policies. Over 22 million individuals or couples have either invested lump sums or save regularly using this instrument.
To understand the success of this product we need to look no further than the tax concessions that it offers. Neither French capital gains tax nor income tax applies whilst the funds remain inside the policy and no withdrawals are made. Even where an amount is withdrawn only the growth element is then subject to income tax, so for example if your portfolio of assets held within the policy has grown by 50% only this percentage of the withdrawal would be taxable; the remaining 50% would be tax-free. Income tax on the gain is charged on a sliding scale, depending on how long the policy has been in force. Nominally the tax rate is 35% for a policy less than 4 years old, 15% for policies between 4 & 8 years old and then 7.5% for all policies over 8 years old. Whilst this may seem punitive for the first four years, you can elect to have the gain added to your taxable income and declared via your annual tax return, making it subject to tax at your prevailing rate. This is obviously advantageous if you have a relatively low income. As an extra incentive to let your funds grow for at least eight years, there is an annual tax-free allowance of 4,600 euros (single person) or 9,200 euros (married couple). This allowance relates strictly to capital gain within the policy, so depending on the growth enjoyed during the investment period, relatively large withdrawals can be made completely free of income tax. A quirk of the French tax system can work greatly to the investor’s advantage with an Assurance Vie policy. The eight year qualifying period for the most beneficial tax regime is governed by what is known as the tax clock. This starts ticking at the instigation of the policy, even if the initial investment is a relatively small amount. It may not be wise to test this system to its limits, but if say €100,000 were invested on day one, and a further €200,000 a year later, the entire fund would still be subject to the lowest tax rates eight years later.
The benefits of Assurance Vie policies are not restricted to income tax or CGT. In
France succession tax is directly comparable to our inheritance tax, but it works in a slightly different way. In the
UK inheritance tax is levied on the estate of the deceased, whereas in
France succession tax is levied on the beneficiary(ies) of the estate. Any tax due is then deducted by the notaire from the proceeds of the will. The proceeds paid out from Assurance Vie policies largely override succession law and succession tax. Any number of beneficiaries may receive up to €152,500 completely free of tax, and pay only 20% on any further amounts received. Whilst recent changes to the tax regime regarding spouses and children have undermined some of this advantage, there is still a huge tax saving to be made when bequeathing legacies to unrelated beneficiaries such as friends or step-children, who would normally pay tax at 60%. There are restrictions to this tax largesse however; the policy must be set up and funded before the policyholder reaches the age of 70. After this age the tax advantage is restricted to a total of €30,500 for all beneficiaries combined.
Generally speaking, the value of an Assurance Vie policy is taken into account in wealth tax calculations, but there are circumstances where Assurance Vie can help mitigate wealth tax liability. This is probably best explained by using an example. If you have a large cash sum, say €500,000 held on bank deposit accounts, this figure will obviously be added to your wealth tax calculation along with the value of property and possessions. The interest earned will also be subject to annual income tax, and be counted as income. If you place this sum within an Assurance Vie investment and leave it there, you are not generating any income from it and it is not being taxed. If you have little other income you can then use another French financial tool, the Bouclier Fiscal, to ensure that your total tax bill, including residential taxes and wealth tax, cannot exceed 50% of your income. If you are asset rich and income poor, you can strategically limit your tax bill in this way.
Your capital grows by investing in the huge range of funds Assurance Vie providers have available, which will include as diverse a selection as they can ranging from the standard equities through to commodities and other fixed interest products. There will also be a range of risk on offer to cater for all from the most cautious to the highly adventurous. There are also a small number of the major investment houses who now offer funds which guarantee to preserve and protect an element of your capital and accrued gain.
One final point in favour of Assurance Vie - Some investment companies are domiciled outside
France, yet still have French compliant Assurance Vie products to offer the
UK expat. Under the terms of the new Double Taxation Treaty between the
UK and
France, contracts entered into on this basis will not be subject to wealth tax for the first five years of residency in
France. Unfortunately this treaty, although signed, has yet to be ratified by the two governments. The existing treaty makes no provision for this, so it will be an advantage for the future. You do need to be aware however that only expats who move to
France after the ratification of the new treaty will be able to benefit from it.
This information is only provided as a guide and, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different.
If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)325461631, via my website www.financialexpat.com or via e-mail
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
Spectrum IFA Group company TSG Insurance Services Sarl is registered and licensed in
France."
TSG Insurance Services S.A.R.L.
Siège Social: 34 Bd des Italiens, 75009 Paris
« Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384)
Numéro d'immatriculation 07 025 332 - www.orias.fr
We don’t have a mortgage so do we need life assurance?
In most but not all circumstances life assurance is only necessary when you don’t have sufficient capital or income to survive without the deceased being around any more, although “assurance vie” can also be of great benefit when dealing with an inheritance tax bill especially if you are intending on leaving an inheritance to a non blood relative. The average thirty something couple with a couple of kids are unlikely to have sufficient capital to deal with the prospect of one of the parents dying. For example, if the father earns €50,000 each year and the spouse, whilst trying to look after the children, manages to work a few hours a week. However should the father die, she is now €50,000 a year worse off. Does she need life assurance? I think we can all see what the answer is going to be. And what if the mother dies before the father? Father now has to arrange for daytime child care as well as covering the costs of cleaning, cooking and laundry. So there is also a strong case for covering the spouse as well.
The fact remains that very few people are planning on dying right now so why introduce another bill? Let’s look at some numbers. How much does it cost to cover an average family car for a 35 year old? Before being bombarded with quotes, let’s say it’s €500 per year. What benefit is being covered? Around €15,000, so for €500 p.a. one receives €15,000 cover. How much buildings insurance and contents cover could you get for €500 p.a.? I will guess at €150,000 buildings and €50,000 contents. This seems to be a better deal than the car at least. With both of the examples above, the choice is not really given as you must have car insurance and most people want the security of having buildings and contents insurance. Now let’s take our couple and see how far the €500 p.a. will go to give them some life assurance. Assuming a fixed term of 20 years until their children are off their hands, this could buy both of them cover of over €130,000. In reality, this probably is not enough to cover their needs but just goes to show what benefits apply to different types of policy.
There are a number of different types of life assurance policy funded by regular or single payments. The cost need not form a large part of your budget and should be seen as essential as the premiums you pay on other insurances as your car is unlikely to pay any tax bill for you!
If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)325461631, e-mail
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
or visit my website www.financialexpat.com
Each individual case is different and you are strongly advised to seek the help of a specialist in this field. At Spectrum IFA Group, our advisors are trained in this area and will be able to provide you with free, impartial advice, relevant to your particular case.
Steven Grover is registered and licensed in
France
under the European wide “umbrella group” of TSG insurance Services (The Spectrum IFA Group).
TSG Insurance Services S.A.R.L.
Siège Social: 34 Bd des Italiens, 75009 Paris
« Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384)
Numéro d'immatriculation 07 025 332 - www.orias.fr
Moving to
France
– How do the recent healthcare changes affect you?
So what has changed?
Previously all EU expatriates relocating to live in
France
were eligible to join the French healthcare system. However since the 23 November 2007 this has changed and if you are not officially retired, not planning to work, or don’t have the appropriate documentation to show your healthcare costs are being covered by your previous country of residence. You will not be allowed to join the system until you either reach state retirement age or have lived in
France
for five years, and until then you will be required to hold private health insurance.
Why?
This is a translation of the official statement by the French Government on the subject taken from www.securite-sociale.fr -
Like other EU countries,
France
is obliged to conform to the EU directive no. 2004/38/CE of April 29, 2004, which fixes rules relating to residence rights for EU citizens.
These rules have a direct bearing on CMU affiliation in
France
. This directive was transposed into French law by the July 24, 2006 law on immigration and integration, then by the March 5, 2007 decree. This transposition was also completed by the March 5, 2007 law on lodging rights in order to address the situation of those who have come to
France
to seek work. Finally, the November 23 Social Security Directorate circular no. DSS/DACI/2007/418 completes the transposition of the directive by clarifying certain points concerning access to the CMU. This takes effect from November 23, 2007.
So what do you need to do if you are moving to France now...
As part of the changes new arrivals who are not eligible to join the French healthcare system will be expected to register with their mairie within 3 months of arriving permanently in France, to provide evidence that you have the financial resources to live here, and evidence of personal medical insurance i.e. either an E106/E121 or private medical insurance.
One of the first things you should do if you are making a move from the
UK
to
France
is to contact the Department of Work & Pensions (+44 191 218 1999) to find out if you are eligible for an E106. The duration of cover an E106 will give you is based on the level of National Insurance contributions you have made over the past two complete
UK
tax years, but the maximum cover it will provide is two years.
After the cover provided under the E106 has expired if you are not yet at state retirement age, and therefore eligible for an E121 from the UK to continue your cover in France you will need to purchase private healthcare until you have either been resident in France for at least five years or you reach state retirement age.
Why do you get access to state healthcare after five years?
Because after five years or more of uninterrupted legal residency in France a person gains the 'permanent right of residence’ under France's Code de l’Entrée et du Séjour des Etrangers, but to prove you have lived here legally for this time you will need have official documents such as tax statements and utility bills.
What should I look for if I do need private health insurance?
Rebecca Gaywood of the Exeter Friendly Society who have been providing and underwriting private healthcare policies for eighty years gives the following words for consideration:
- Make sure the Insurance provider you choose is fully regulated, if they are
UK
based this would be the FSA
- Read all of the small print in the policy wording paying particular attention to standard rules, benefits and exclusions
- Check any benefit limits/restrictions, especially when ‘full refund’ applies to benefits, also if there are any compulsory excesses and whether these excesses apply per claim or per year.
- Some policies include ‘no claims discounts’ and so it is best to check how these affect your initial premium and premiums payable in the future as and when a claim is made.
- Ensure any personal exclusions imposed are clear and concise so you know what you are covered for and what you are not covered for before making any claims.
- It is always useful to check claims procedures and whether direct settlement to medical providers is available.
As you can imagine costs will vary enormously due to age and circumstance, but you are unlikely to be looking at less than 2,000€ a year. And if you have a pre-existing medical conditions private insurance may be difficult to obtain as most private insurance companies do not usually allow such conditions to be covered. However, under the new legislation it could be possible to appeal to the CMU for access as long as you can provide evidence you have been unable to obtain private cover in due to this condition.
What if I develop a serious medical condition after I have moved to France?
If you develop a serious medical condition and/or your life changes in a way that you did not expect when you moved to
France
you should, in theory, be able to appeal to be allowed into the French healthcare system. At the moment, how an appeal is viewed is open to interpretation and down to regional CPAM offices. It may well be that over time a procedure to determine the criteria for affiliation is introduced, but currently this is not the case.
What if you started working after your initial cover had run out to give you access to CMU?
To give you and idea of what the minimum requirements are for an employee you must have worked at least –
· 60 hours per month
· or 30 consecutive days
· or 120 hours in salaried employment during three consecutive calendar months
· or three months start date to finish date
· or you must have worked 1200 hours in salaried employment during one calendar year (the latter will get you two years cover).
Self-employed is less complicated because there is no minimum income. So in theory you can register as an Enterprise Individuelle, earn no money, and only pay your healthcare contributions which are about 1,300€ a year which will enable you to obtain a carte vitale. However while this option could work for a limited time frame in the long-term you may be seen as committing fraud, and you need to take into account the cost of registration and the continuing costs of being self-employed (legal, accountancy, business taxes) which in France are significant so you would have to add these costs onto your health social charges. Plus, these payments are also calculated retrospectively so for the first year of trading you will have to pay the full cost of social charges which is about 3,500€ (although the difference will eventually be reimbursed).
This information is only provided as a guide and, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different.
If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)325461631, via my website www.financialexpat.com or via e-mail
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
Spectrum IFA Group Company TSG Insurance Services Sarl is registered and licensed in
France
."
TSG Insurance Services S.A.R.L.
Siège Social: 34 Bd des Italiens, 75009 Paris
« Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384)
Numéro d'immatriculation 07 025 332 - www.orias.fr
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